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5 Questions With Cannabis Retailer MedMen

Just two years after the launch of their first store in West Hollywood, MedMen Enterprices Inc. (OTC: MMNFF) has positioned itself as one of the leading cannabis retailers in the country.

Today, the Los Angeles-based company—which IPO’d on the Toronto Stock Exchange in May—has 19 licensed facilities across California, New York, Nevada and Florida. According to the company, MedMen stores accounted for 6 percent of all retail sales in California last year despite operating only 2 percent of stores in the state, and their flagship store is on pace to bring in $20 million in sales this year.

They also recently closed an acquisition of Treadwell Nursery for $53 million, which will give MedMen the right to open up to 30 retail locations in the third-largest market.

So clearly, it’s been a big year for the company that’s described itself as the Target Corporation (NYSE: TGT) of weed. Benzinga caught up with Daniel Yi, MedMen’s SVP of Corporate Communications and Investor Relations, to ask him a few questions.

Benzinga: First of all, explain MedMen’s business model.

Daniel Yi: We operate as a vertically integrated cannabis infrastructure in state-sanctioned cannabis markets in the US. So we have cultivation, manufacturing, distribution and retail in every market we operate in, with an emphasis on retail. The reason we put a lot of marketing dollars and resources into putting stores in prime locations like 5th Avenue in Manhattan is because we look at this as a consumer product.

Our theory is that medical markets eventually lead to adult use markets. If you look at the progression of every state, it goes decriminalization, medical use with varying degrees of restrictions...and then once the state and communities feel comfortable with the idea of marijuana being more legal, then you have conversations about legalizing for adult use. That’s been the pattern for every state since California first legalized medical marijuana use in 1996.

So our business model, our bet about 4-5 years ago, was that this industry is going to be very similar in the way it’s regulated to the gaming industry. Every state has different rules, there’s an overarching sanction, and sometimes there are different ordinances all the way down to the city level. But you have to understand the complexity of the regulatory landscape in order to run a national brand. And the way you do that is a management model where you’re actually managing facilities, because growing marijuana is the same no matter where you are, it’s still the plant. But the regulatory landscape is what’s different, so if you understand that you can scale up at a national level.

Benzinga: Why do you think it’s important to be vertically integrated?

Yi: For two reasons. Number one, in some states you don’t have an option. In New York for example it’s a vertically integrated license. So you cannot cultivate marijuana and sell it to another licensed retailer. That’s not the case in California and Nevada.

Secondarily though, being vertically integrated gives you leverage. For example, our bet is heavy on the retail side. So the fact that we cultivate our own flower gives leverage when we buy flower from other vendors because we have a better knowledge of the real costs, so we’re not buying in the dark.

Also, sometimes there are disruptions in the supply chain. When California started adult use sales January 1, 2018, not all of the cultivators and wholesalers had licenses yet. So there was some lag time for all of the licenses to be issued. For example in Los Angeles none of the dispensaries had licenses to sell adult use on Jan 1. It came back 3-4 weeks later. So having that vertical integration gives you leverage to stay ahead of the curve.

Benzinga: MedMen had previously raised $135 million via two private equity funds, but you also IPO’d this year. How has the introduction of public financing change things?

Yi: Oh it’s huge. It’s another huge milestone. I think years from now when people write history books about this, the obvious milestones are going to be the legal milestones, but the less obvious to the average observer of this industry is the money.

Even two years ago when I started at this company, there wasn’t much of a public market to speak of. In the last seven months you have three Canadian marijuana companies that have listed on the Nasdaq and NYSE and you have a bunch of us companies that have gone on the Toronto Stock Exchange. What that has done is add rocket fuel to the growth of the industry. For the two private equity funds it took us the better part of a year and a half to two years to raise $135 million. When we did the IPO we raised $110 million in a matter of months.

Benzinga: You’ve said the company has placed a heavy emphasis on retail, and all of your locations have different aesthetics. Explain MedMen’s retail philosophy?

Yi: People have compared us to luxury brands. When we opened the store in Manhattan, Page Six called us the Barneys of weed because we were across from Lord & Taylor. I think what that speaks to is a familiarity of an idea. People know what it feels like to go into Starbucks Corporation (NASDAQ: SBUX). Not everybody knows what it’s like to go into a marijuana store. We want to give a prime experience so that it’s accessible to anybody who wants to use cannabis responsibly.

It’s much more about lifestyle and wellness than it is about the product itself. In terms of our position, we’re not advocating for the use of cannabis, we’re advocating for the freedom to use cannabis. If you want to incorporate cannabis into your lifestyle in a responsible way, just like how most people incorporate alcohol into their lifestyle...our brand position is it’s accessible and it's normalized. You should feel not an iota of stigma when you walk into a MedMen store.

I get this question all the time. Is it like Walmart Inc (NYSE: WMT)? Is it like Nordstrom, Inc. (NYSE: JWN)? I think there’s space for everyone. I understand that a lot of people don’t like going to cookie cutter coffee shops like Starbucks, but man it’s convenient. I know anywhere in the world if I go into a Starbucks I can get my venti frappuccino and it’s going to taste the same. But do I always go to Starbucks? No.

I think there’s enough space for all of that to exist. I don’t think it needs to be a binary world where it’s either this or that.

Benzinga: What is Medmen’s edge?

Yi: I think it’s very much our approach to this. We approach this from a consumer retail standpoint. That’s why I think our stores are outperforming. We didn’t invent retail, Nordstrom already knows how to do retail. We’re just using practices that are already out there but applying them to this space.

We make no apologies for the fact that we’re a cannabis company. We don’t mask it with the pretension that we’re a medical company. We are very much about making cannabis mainstream for responsible adult users who want to incorporate this into their lifestyle. Our brand reflects that. Our stores reflect that. The way we go about cultivation reflects that. We treat this as a consumer product and we want to have the highest quality product, the highest quality stores to serve our customers.